Voices

Why property rights are pro-poor

2019-07-11 22:43

What is the cause of poverty? And what would be the solution?

These are questions that have shaped my thoughts for some time now. In this article, I present some of my thinking, along with some data to back my views.

I am filled with rage when I see how many people, especially in my native Zululand, are poor, with KwaZulu-Natal having the greatest share of South Africa’s poor households at 20.6%, according to the Living Conditions Survey 2014/15 released by Stats SA in March 2018.

The share of the South African population living in KwaZulu-Natal is steadily decreasing from 20.1% in 2014 to 19.7% in 2018. KwaZulu-Natal was one of four provinces – Free State, Eastern Cape and Limpopo – that have experienced a decline in their population share.

Of these four provinces, Eastern Cape, KwaZulu-Natal and Limpopo experienced negative net-migration between 2011 and 2016. And they have the most tribal/communal land. They also happen to have 47.9% of South Africa’s poor.

Why, then, is it that the good people of KwaZulu-Natal keep failing to identify and address the source of their poverty? The Western Cape, for example, is the third most populated province but is seventh in terms of share of the country’s poor. KwaZulu-Natal is first even though the population share is decreasing while the Western Cape’s population share increased from 11.2% to 11.8% between 2014 and 2018.

Its net migration between 2011 and 2016 was positive, making it the second highest after Gauteng.

KwaZulu-Natal has the greatest concentration of this country’s largest minority group: IsiZulu language speakers – 25.3% of all South Africans speak the language in the home. The next most-spoken home language is isiXhosa, lying a distant second with 14.8% of home language speakers.

In terms of the incidence of poverty, KwaZulu-Natal is fourth in the country after Limpopo, Eastern Cape and the North West – four provinces that are virtually home to all the country’s communal land.

Meanwhile, the Western Cape has the lowest incidence of poverty and has no communal land.

Also of interest is that the poorest provinces receive a bigger share of financial transfers per person living in the province from the national government and yet the distribution of poverty has remained more or less constant. Surely it’s a matter of great surprise for government central planners that people, voting with their feet, are leaving provinces with the greatest per capita government expenditure that have a lower level of per capita government expenditure.

So, large populations don’t make provinces poorer. Government expenditure does not seem to be making provinces any better off. And the poorest provinces just happen to be the ones with most of the communal land, or, dead capital according to economist Hernando De Soto.

To hammer the point home, Gauteng and the Western Cape received 19.9% and 10.1%, respectively, of the provincial equitable share from the National Treasury in 2018/19. Gauteng was home to a projected 25.5% of the population according to Stats SA’s 2018 mid-year population estimate. The Western Cape was home to 11.5% of the population.

Meanwhile, the Eastern Cape received 13.93% of the allocation for a population share of 11.3%, and Limpopo 11.73% of the allocation for a population share of 10.0%.

When it comes to the macroeconomy, Gauteng, KwaZulu-Natal and the Western Cape had the top three GDP numbers in South Africa in 2013, according to the Organisation for Economic Co-operation and Development. Yet, when it comes to GDP per capita during the same year, Gauteng still leads but KwaZulu-Natal slips from second to seventh in the country while the Western Cape moves up one spot from third to second.

The living conditions survey shows that communal land is home to 43.2% of the country’s poor people while only 5% of households are classified as traditional. The formal/informal households are largely found in urban areas

All of this says, private property rights matter. The stronger property rights are, the more likely individuals are to be wealthier, healthier and, hopefully, happier, and, therefore, we can say that pursuing land expropriation without compensation is an anti-poor policy.

Poor people benefit from a system of secure property rights and they understand this, if not consciously, then sub-consciously, as can be observed from the fact that the poor move to the provinces where property rights are most secure.

If government is interested in making a dent in poverty, one of the steps that needs to be taken is the immediate abandonment of land expropriation without compensation as a policy goal.

The next step should be to strengthen property rights for everyone, especially the poor by giving them title deeds to their own land. Clearly, trying to solve poverty by throwing money at the problem is a useless endeavour as evidenced by the fact that supposed beneficiaries of taxpayer-funded largesse prefer to live in provinces with lower per capita spending by government.

We also see that the type of tenure existing on tribal land in the former homelands keeps individuals living in those areas poor. It is not enough to defeat land expropriation without compensation. Poor people on communal land also need their property rights to be restored to them and their neighbours.

A system of secure property rights benefits even those who do not own property because of the commercial activity generated when people can use their assets to trade, finance and generally engage in long-term economic planning. This explains the migration from communal KwaZulu-Natal and the Eastern Cape to Gauteng and the Western Cape with their relatively secure property rights.

It is reasonable, therefore, to assume that the converse holds: if property rights are made less secure, through land expropriation without compensation for example, government gains even more power to interfere with the property rights of individuals.

It becomes harder to engage in long-term economic planning since any money spent acquiring the property and making improvements can simply disappear into thin air when a bureaucrat comes calling backed up by nothing more than the arbitrary notion of public interest.

The problem here is that “the public” is made up of millions of individuals each with their own unique values and interests. We can only expect to see more people becoming poor when property rights are watered down, no matter what the legal wording that enables this says.

But, this time the poor will not have to move to a Gauteng or a Western Cape because conditions there will be no different from where they’re already living.

Mpiyakhe Dhlamini is a data science researcher at the Free Market Foundation. The views expressed in this article are those of the author and not necessarily those of the Free Market Foundation.

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October 13 2019